More Gain than Pain: Consolidating the Public Finances

Across the world economies face unprecedented levels of public debt. Moves must be made to balance the books. Most economists agree that fiscal consolidation will, in the long term, be beneficial. It will bring economic growth, helping to restore the fiscal position. But fears remain for the short term on Keynesian grounds: consolidation could prompt an adverse impact on demand and so damage economic recovery.

The distinguished authors from the ECB, Philipp Rother, Ludger Schuknecht and Jürgen Stark, explain however, that the short-term benefits of consolidation will also be significant. It will build confidence in the sustainability of public liabilities andso support demand. It will also guard against vicious circles of financial and fiscal instability. These remain an ever present danger, given the close interlinking of the financial and fiscal sectors today. Indeed, so deleterious are the effects of high public debt on confidence, growth and stability that cutting deficits and debt now is clearly the best course.

Friday 27th March:Britain's health service has become a central issue in the UK's coming election. However, the UK is not alone in the priority it gives healthcare and pensions. Across western economies, as governments prepare the budget for the coming financial year, they have one question in common. How can the economic priorities of growth, and fiscal reform, be accommodated to the demands by ageing populations for more healthcare and pensions? Here, Matthias Daunsa senior economist from Germany's Finance Ministry,explains some of the principles which guide successful systems.

As demand for healthcare and pensions rises with increasing life expectancy and higher proportion of retired to working age people, the design of social security systems will become ever more important. Not only must the constraints of the public finances be accommodated, but so too must countries' wider economic aims, including economic growth. For all of these reasons, effective and efficient social security systems will be central as policy makers and societies tackle the challenge of paying for the future.